CCB 10-K & 10-Q changes, risk factors and insider trading

•If ourOur allowance for credit losses ismay prove to be insufficient to absorb actuallosses credit losses,in our resultsloan of operations would be negatively affected.portfolio.

•WeIneffective mayliquidity be unable to effectively manage our growth, whichmanagement could haveadversely an adverse effect onaffect our business, financial condition and results of operations.

•We are subject to regulatorynumerous requirements,laws designed to promote community reinvestment or protect consumers, including stringentthe capital requirements, consumer protection laws,CRA and anti-moneyfair launderinglending laws, and failure to comply with these requirementslaws could havelead anto adversea effectwide on our business, financial condition and resultsvariety of operations.sanctions.

•We are subject to laws regarding the privacy, information security and protection of personal information and any violation of these laws or incidentsanother incident involving personal, confidential or proprietary information of individuals, including, among others, system failures or cybersecurity breaches of our network security,individuals could damage our reputation and otherwise adversely affect our business, financial condition and results of operation.operations.

We are subject to interest rate riskrisk, and fluctuations in interest rates may adversely affect our earnings.

The majority of our banking assets and liabilities are monetary in nature and subject to risk from changes in interest rates. Like most financial institutions, our earnings are significantly dependent on our net interest income, the principal component of our earnings, which is the difference between interest earned by us from our interest-earning assets, such as loans and investment securities, and interest paid by us on our interest-bearing liabilities, such as deposits and borrowings. We expect that we will periodically experience “gaps” in the interest rate sensitivities of our assets and liabilities, meaning that either our interest-bearing liabilities will be more sensitive to changes in market interest rates than our interest-earning assets, or vice versa. In either event, if market interest rates should move contrary to our position, this “gap” will negatively impact our earnings. The impact on earnings is more adverse when the slope of the yield curve flattens, that is, when short-term interest rates increase more than long-term interest rates or when long-term interest rates decrease more than short-term interest rates. Many factors impact interest rates, including governmental monetary policies, inflation, recession, changes in unemployment, the money supply and international economic weakness and disorder and instability in domestic and foreign financial markets. Our interest rate sensitivity profile was modestly liability sensitive as of December 31, 2024, meaning that we estimate our net interest income would increase more from falling interest rates than from rising interest rates. Loans and deposits in our CCBX segment are more sensitive to interest rate changes than our community bank segment. Over time we anticipate that this will increase sensitivity to both increasing and decreasing interest rates.

Interest rate increases often result in larger payment requirements for our borrowers, which increases the potential for default and could result in a decrease in the demand for loans. At the same time, the marketability of the property securing a loan may be adversely affected by any reduced demand resulting from higherelevated interest rates. In a declining interest rate environment, there may be an increase in prepayments on loans as borrowers refinance their loans at lower rates. In addition, in a low interest rate environment, loan customers often pursue long-term fixed rate credits, which could adversely affect our earnings and net interest margin if rates increase. Changes in interest rates also can affect the value of loans, securities and other assets. An increase in interest rates that adversely affects the ability of borrowers to pay the principal or interest on loans may lead to an increase in nonperforming assets and a reduction of income recognized, which could have an adverse effect on our results of operations and cash flows. Further, when we place a loan on nonaccrual status, we reverse any accrued but unpaid interest receivable, which decreases interest income. At the same time, we continue to have a cost to fund the loan, which is reflected as interest expense, without any interest income to offset the associated funding expense. Thus, an increase in the amount of nonperforming assets would have an adverse impact on net interest income.

Our focus on lending to the smallsmall- to medium-sized businesses may adversely affect our business, financial condition and results of operations.

We focus our business development and marketing strategy primarily on smallsmall- to medium-sized businesses. SmallSmall- to medium-sized businesses frequently have smaller market shares than larger firms, may be more vulnerable to economic downturns, often need substantial additional capital to expand or compete and may experience substantial volatility in operating results, any of which may impair a borrower’s ability to repay a loan. In addition, the success of a small and medium-sized business often depends on the management skills, talents and efforts of a small group of people, and the death, disability or resignation of one or more of these people could have an adverse effect on the business and its ability to repay its loan. If our borrowers are unable to repay their loans, our business, financial condition and earningsresults of operations could be adversely affected.

At December 31, 2024,2025, $1.60$1.81 billion, or 45.9%48.1%, of our total loans were originated or purchased through CCBX partners. Our partners underwrite these loans in compliance with our credit standards and policies. Our CCBX partners service $1.49$1.60 billion of these loans. Our partners provide fraud and credit enhancements on many of our CCBX loans, but if they are unable to fulfill their contracted obligations thenobligations, the Bank wouldcould be exposed to writing off all or a partportion of the related credit enhancement asset and to additional credit losses as a result of this counterparty risk. In certain partner arrangements, the partner is required to maintain reserve, escrow or similar funding mechanisms (including replenishment obligations) intended to support servicing duties, representations and warranties, fraud losses and other credit-related obligations. These reserve or funding positions may decline below required levels or become negative due to loss activity, timing differences or other factors, and partners may be required to replenish such amounts. If a partner is unable or unwilling to fund or replenish required amounts on a timely basis, we could be exposed to higher credit losses, incur additional servicing or operational costs, accelerate loss recognition or write off all or a portion of the related credit enhancement asset. We evaluate partner funding capacity and reserve adequacy on an ongoing basis as part of our risk management framework and may exercise contractual remedies, which may include adjusting reserve requirements, suspending originations or purchases, or transferring servicing responsibilities, if warranted. We are subject to compliance and regulatory risk if partners do not follow our servicing policies, lending laws and regulations.

Many of the agreements with our CCBX partners provide for a credit enhancement which helps protect the Bank by absorbing incurred losses. CCBX credit enhancements are free-standing and are accounted for separately from the allowance for credit loss.losses. In accordance with accounting guidance, we estimate and record a provision for probable losses for these CCBX loans, without regard to the credit enhancement. If a CCBX lending partner is unable to fulfill its contractual obligations with the Bank, then the Bank would be exposed to additional credit losses as a result of this counterparty risk and would have to absorb any credit losses associated with any CCBX partner that cannot fulfill its contractual obligations.

As of December 31, 2024,2025, the balance of owned SBA loans and SBA loans net of the sold portion was $22.8$5.2 million, which includes $2.3 million in PPP loans that are 100% guaranteed, and an additional $1.5 million in non-PPP SBA loans which are also guaranteed. As of December 31, 2024,2025, the balance of SBA loans sold and serviced was $4.1$2.5 million, resulting in $104,000$17,000 in servicing income for the year ended December 31, 2024.2025. Our SBA lending program is dependent upon the U.S. federal government. As an approved participant in the SBA Preferred Lender’s Program, referred to herein as an SBA Preferred Lender, we enable our clients to obtain SBA loans without being subject to the potentially lengthy SBA approval process necessary for lenders that are not SBA Preferred Lenders. The SBA periodically reviews the lending operations of participating lenders to assess, among other things, whether the lender exhibits prudent risk management. When weaknesses are identified, the SBA may request corrective actions or impose enforcement actions, including revocation of the lender’s SBA Preferred Lender status. If we lose our status as an SBA Preferred Lender, we may lose some or all of our customers to lenders who are SBA Preferred Lenders, and as a result we could experience an adverse effect to our financial results. Any changes to the SBA program, including but not limited to changes to the level of guarantee provided by the federal government on SBA loans, changes to program specific rules impacting volume eligibility under the guaranty program, as well as changes to the program amounts authorized by Congress or exhaustion of the available funding for SBA programs may also have an adverse effect on our business, financial condition and results of operation. In addition, any default by the U.S. Government on its obligations or any prolonged government shutdown could, among other things, impede our ability to originate SBA loans or sell such loans in the secondary market, which could adversely affect our business, financial condition and results of operations.

Outside of the PPP, theThe SBA’s 7(a) Loan Program is the SBA’s primary program for helping start-up and existing small businesses, with financing guaranteed for a variety of general business purposes. Generally, we sell the guaranteed portion of our non-PPP SBA 7(a) loans in the secondary market. These sales result in premium income for us at the time of sale and create a stream of future servicing income, as we retain the servicing rights to these loans. For the reasons described above, we may not be able to continue originating these loans or sell them in the secondary market. Furthermore, even if we are able to continue to originate and sell SBA 7(a) loans in the secondary market, we might not continue to realize premiums upon the sale of the guaranteed portion of these loans or the premiums may decline due to economic and competitive factors. When we originate SBA loans, we incur credit risk on the non-guaranteed portion of the loans, and if a customer defaults on a loan, we share any loss and recovery related to the loan pro-rata with the SBA. If the SBA establishes that a loss on an SBA guaranteed loan is attributable to significant technical deficiencies in the manner in which the loan was originated, funded or serviced by us, the SBA may seek recovery of the principal loss related to the deficiency from us. Generally, we do not maintain reserves or loss allowances for such potential claims and any such claims could adversely affect our business, financial condition and results of operations.

Prolonged deteriorating economic conditions could significantly affect the markets in which we do business, the value of our loans and investment securities, and our ongoing operations, costs and profitability. Further, declines in real estate values and sales volumes and elevated unemployment levels may result in higher loan delinquencies, increases in our nonperforming and classified assets and a decline in demand for our products and services. These events may cause us to incur losses and may adversely affect our financial condition and earnings.results of operations. Reduction in problem assets can be slow, and the process can be exacerbated by the condition of the properties securing nonperforming loans and the lengthy foreclosure process in Washington. To the extent that we must work through the resolution of assets, economic problems may cause us to incur losses and adversely affect our capital, business, financial condition, results of operations or cash flows and our access to liquidity.

In 2006, the federal banking regulators issued joint guidance entitled “Concentrations in Commercial Real Estate Lending, Sound Risk Management Practices” (“CRE Guidance”). Although the CRE Guidance did not establish specific lending limits, it provides that a bank’s commercial real estate lending exposure could receive increased supervisory scrutiny where total non-owner-occupied commercial real estate loans, including loans secured by apartment buildings, investor commercial real estate, and construction and land loans, represent 300% or more of an institution’s total risk-based capital, and the outstanding balance of the commercial real estate loan portfolio has increased by 50% or more during the preceding 36 months. Our total non-owner-occupied commercial real estate loans, including loans secured by apartment buildings, investor commercial real estate, and construction and land loans, totaled $1.1$1.13 billion and represented 184.2%170.9% and 269.2%184.2% of its capital, at December 31, 20242025 and 2023,2024, respectively. The outstanding balance of the Bank’s regulatory CRE portfolio has decreased by 0.4%, and increased by 5.1%, 16.8%, and 30.9%,16.8%, for the years ended December 31, 2025, 2024, 2023, and 20222023 respectively.

In December 2015, the federal banking regulators released a new statement on prudent risk management for commercial real estate lending, referred to herein as the 2015 Statement. In the 2015 Statement, the federal banking regulators, among other things, indicate their intent to “continue to pay special attention” to commercial real estate lending activities and concentrations going forward. If the Federal Reserve, our primary federal regulator, were to impose restrictions on the amount of commercial real estate loans we can hold in our portfolio, for reasons noted above or otherwise, our earnings would be adversely affected.

A major catastrophe, such as an epidemic illness, earthquake, tsunami, flood, fire or other natural disaster or effects of climate change could result in a prolonged interruption of our business. For example, our headquarters are located in Everett, Washington and we serve the broader Puget Sound region, a geographical region that has been and may continue to be affected by earthquake, tsunami, wildfires and flooding activity. These activities may increase as the effects of climate change increase. Because we serve individuals and businesses in the Northwest, a natural disaster, epidemic illness, significant effect of climate change or other major catastrophe in the Northwest likely would have a greater impact on our business, financial condition and results of operation than if our business were more geographically diverse. The occurrence of any of these natural disasters.disasters, epidemic illnesses, effects of climate change or other major catastrophes could negatively impact our performance by disrupting our operations or the operations of our customers, which could adversely affect our business, financial condition,condition and results of operations.

We are a bank holding company that operates through our wholly owned subsidiaries, Coastal Community Bank (“Bank”) and Arlington Olympic LLC. We are headquartered in Everett, Washington, which by population is the largest city in, and the county seat of, Snohomish County. Our business is conducted through three reportable segments: The community bank, CCBX and treasury & administration. The community bank segment includes all community banking activities, with a primary focus on providing a wide range of banking products and services to consumers and small to medium sized businesses in the broader Puget Sound region in the state of Washington and through the Internet and our mobile banking application. We currently operate 14 full-service banking locations, 12 of which are located in Snohomish County, where we are the largest community bank by deposit market share, and two of which are located in neighboring counties (one in King County and one in Island County). and have one loan production office in King County. The CCBX segment provides banking as a service (“BaaS”) that allows our broker-dealer and digital financial service partners to offer their customers banking services. The CCBX segment had 2428 partners as of December 31, 2024.2025. The treasury & administration segment includes investments, debt and other reporting items that are not specific to the community bank or CCBX segments. The Bank’s deposits are insured in whole or in part by the Federal Deposit Insurance Corporation (“FDIC”). The Bank is subject to regulation by the Federal Reserve and the Washington State Department of Financial Institutions Division of Banks. The Federal Reserve also has supervisory authority over the Company.

The largest component of noninterest expense is BaaS loan expense and salaries and employee benefits. Other significant operating expenses include BaaS fraud expense, legal and professional expenses, data processing and software licenses and occupancy expense. Our operating efficiency, as measured by our efficiency ratio, has gradually improved primarily because the growth of our deposits and loans has enabled our net interest income and noninterest income to outpace the growth of our expenses. When we make substantial investments in our infrastructure and make investments to increase our operating capacity, our operating efficiency ratio decreases until we generate enough revenue growth to offset the increased costs however, prior to making such investments, we focus on how best and most expediently we can achieve the revenue growth necessary to offset the costs of these investments or new branches. Our efficiency ratio has been impacted by the increase in CCBX income and CCBX expense. Our efficiency ratio was 53.13% at December 31, 2025, compared to 42.38% at December 31, 2024, compared to 44.66% at December 31, 2023.2024. This ratio decreasedincreased as a result of thean increase in net interest incomeincome, anddecrease in credit enhancement income and higher noninterest expenses for the year ended December 31, 20242025 compared to the year ended December 31, 2023.2024.

Our business and financial performance are affected by economic conditions generally in the United States for CCBX and more directly for the community bank in the markets in the Puget Sound region where we operate. The significant economic factors that are most relevant to our business and our financial performance include, but are not limited to, real estate values, interest rates and unemployment rates. In recent years, the Puget Sound region has experienced significant population gain, fueled in large part by the region’s technology industry, low unemployment and rising real estate values, all of which positively impacted our business. The macro economic environment is continuously changingchanging, withprimarily bankdue failures,to mergers,the pace of economic growth, inflation, changing interest rates, global trade tensions, tariffs, unemployment, global unrest, the war in Ukraine, conflicts in the Middle East, political environment,uncertainty, natural disasters,disasters and trade issues that contribute to economic uncertainty which has caused increased market volatility and may lead to a significant decrease in consumer confidence and business generally.

The allowance for credit losses ("ACL") is an estimate of the expected credit losses on financial assets measured at amortized cost. The ACL is evaluated and calculated on a collective basis for those loans which share similar risk characteristics. At each reporting period, the Company evaluates whether the loans in a pool continue to exhibit similar risk characteristics as the other loans in the pool and whether it needs to evaluate the allowance on an individual basis. The Company must estimate expected credit losses over the loans’ contractual terms, adjusted for expected prepayments. In estimating the life of the loan, the Company cannot extend the contractual term of the loan for expected extensions, renewals,renewals and modifications, unless the extension or renewal options are included in the contract at the reporting date and are not unconditionally cancellable by the Company. Because expected credit losses are estimated over the contractual life adjusted for estimated prepayments, determination of the life of the loan may significantly affect the ACL. The Company has chosen to segment its portfolio consistent with the manner in which it manages the risk of the type of credit.

The Company increaseddecreased the allowance from $117.4 million at December 31, 2023 to $177.0 million at December 31, 2024.2024 to $169.5 million at December 31, 2025. The allowancechange wasis significantlylargely increased in responserelated to growthimproved incredit quality decreasing the provision for CCBX loans. The Company uses CCBX partner data, industry data and its own credit loss data to develop an appropriate allowance for the risk inherent in the CCBX new loan volume.portfolio. For more information and discussion related to the allowance for credit losses, see “Note 4 - Loans and Allowance for Credit Losses” in the Consolidated Financial Statements.

The recording of BaaS income and expense is in accordance with accounting guidance, and is dependent upon the contractual agreement with each partner, however in accordancepartner with accounting guidance the recording of certain components of BaaS income arebeing consistent across agreements. Agreements with many of our CCBX partners provide for a credit enhancement which protects the Bank by absorbing incurred credit and fraud losses. In accordance with accounting guidance, we estimate and record a provision for probable losses for these CCBX loans. When the provision for credit losses - loans and provision for unfunded commitments is recorded, a credit enhancement asset is also recorded on the balance sheet through noninterest income (BaaS credit enhancement). Incurred losses are recorded in the allowance for credit losses, and the credit enhancement asset is relieved when credit enhancement payments and recoveries are received from the CCBX partner. Many agreements with our CCBX partners also provide protection to the Bank from fraud by absorbing incurred fraud losses. Fraud losses are recorded when incurred in noninterest expense, and the recovery received from the CCBX partner is recorded in noninterest income, resulting in a net impact of zero to the income statement. Enhancements that provide protection to the Bank from credit and fraud losses,losses are not within the scope of Topic 606.

For the year ended December 31, 2024,2025, noninterest income subject to Topic 606 increased $6.6$9.7 million to $24.7$34.3 million, compared to $18.1$24.7 million for the year ended December 31, 2023.2024. The increase was largely due to an increase in BaaS feeprogram income resulting from increased activity and growth with active CCBX partners. For more information and discussion related to revenue recognition, see “Note 19 – Revenue Recognition” in the Consolidated Financial Statements.

Year Ended December 31, 2024,2025, Compared to Year Ended December 31, 2023.2024. Net interest income for the year ended December 31, 2024,2025, was $273.0$310.1 million, compared to $231.6$273.0 million for the year ended December 31, 2023,2024, an increase of $41.6$37.0 million, or 17.9%. Yield on loans receivable was 11.20% for the year ended December 31, 2024, compared to 10.36% for the year ended December 31, 2023.13.6%. The increase in net interest income compared to the year ended December 31, 20232024 was largely related to growth in CCBX loans from CCBX and thea communitydecrease bank.in interest expense as a result of lower interest rates.

CCBX average loans receivable grew to $1.73 billion for the year ended December 31, 2025, compared to $1.43 billion for the year ended December 31, 2024, compared to $1.21 billion for the year ended December 31, 2023, an increase of $217.2$302.4 million, or 17.9%.21.2%. Average CCBX yield of 17.39%15.87% and 16.30%17.39% was earned on CCBX loans for the years ended December 31, 20242025 and December 31, 2023,2024, respectively. This decrease in yield on loans receivable is the result of lower rates compared to the prior year period as well as a change in the loan mix. Lower rate capital call lines were $101.5 million higher compared to December 31, 2024. CCBX yield does not include the impact of BaaS loan expense. BaaS loan expense represents the amount paid or payable to partners for credit enhancements, fraud enhancements and servicing CCBX loans. The tables later in this section illustrate the impact of BaaS loan expense on CCBX loan yield.

Community bank average loans receivable grewwas fairly flat at $1.88 billion for the year ended December 31, 2025, compared to $1.89 billion for the year ended December 31, 2024, comparedrepresenting toa $1.73 billion for the year ended December 31, 2023, an increasedecrease of $166.5$8.5 million, or 9.6%.0.4%. Average yield of 6.54%6.52% was earned on community bank loans for the year ended December 31, 2024,2025, compared to 6.20%6.54% for the year ended December 31, 2023.2024.

Interest income from interest earning deposits with other banks was $21.3$29.0 million for the year ended December 31, 2024,2025, an increase of $5.9$7.7 million largely due to an increase in balances, compared to the year ended December 31, 2023.2024. The average balance of interest earning deposits invested with other banks for the year ended December 31, 20242025 was $405.5$671.7 million, compared to $295.8$405.5 million for the year ended December 31, 2023. Additionally, the yield on these interest earning deposits with other banks increased 0.05%, compared to the year ended December 31, 2023.2024. Interest income on investment securities decreased $141,000$529,000 to $3.1$2.5 million, with a yield of 4.67% at December 31, 2024, compared to $3.2 million, and a yield of 2.66%, at December 31, 2023.million. Average investment securities decreased $54.7$19.2 million from $120.2 million for the year ended December 31, 2023 to $65.5 million for the year ended December 31, 2024 to $46.2 million for the year ended December 31, 2025 as a result of available for sale (“AFS”) U.S. Treasurymaturing securities thatand maturedprincipal earlier in the year, partially offset by an increase in HTM securities resulting from securities purchased for CRA purposes.paydowns.

Interest expense was $91.6$119.6 million for the year ended December 31, 2023,2025, a $71.2$4.2 million increasedecrease from the year ended December 31, 2022.2024. Interest expense on deposits was $89.0$116.9 million for the year ended December 31, 2023,2025, compared to $19.0$120.9 million for the year ended December 31, 2022.2024. The $70.0$4.0 million increasedecrease in interest expense on deposits was primarily due to decreases in interest rates despite an increase in average interest bearing deposits of $671.0$439.2 million. Interest on borrowed funds was $2.6 million for the year ended December 31, 2023,2025 comparedand to $1.4$2.8 million for the year ended December 31, 2022.2024. The $1.3$179,000 million increasedecrease in interest expense on borrowed funds from the year ended December 31, 20222024 wasis primarily the result of a $16.4 million average balance increasedecrease in interest rates on the junior subordinated debt, which increaseddecreased during1.00% to 6.77% for the quarteryear ended December 31, 20222025, partiallycompared offsetto by7.77% a decrease in average FHLB borrowings, which were paid off in full duringfor the quarter ended March 31, 2022. The FOMC increased the Fed Funds rate 1.00% during the twelve monthsyear ended December 31, 2023, with the most recent increase during such period on July 26, 2023.2024.

CostNet ofinterest fundsmargin was 2.91%7.14% for the year ended December 31, 2023,2025, compared to 0.75%7.18% for the year ended December 31, 2022.2024. CostThe ofdecrease depositsin fornet interest margin compared to the year ended December 31, 20232024 was 2.87%, which waslargely a 2.16%result increase,of froma 0.71%decrease of 0.20% for theyield yearon endedloans Decemberand 31,a 2022.decrease Theseof increases0.93% wereon largelyinterest duebearing todeposits anwith other banks partially offset by a decrease of 0.48% for cost of deposits, despite a $439.2 million increase in interest rates and an increase inaverage interest bearing deposits.deposits, CCBXmany depositof growthwhich alsowere contributedimpacted toby thea increaselower inFed interestFunds expense.rate for all of 2025.

Total yield on loans receivable for the year ended December 31, 20232025 was 10.36%,11.00%, compared to 8.12%11.20% for the year ended December 31, 2022.2024. This increasedecrease in yield on loans receivable is primarily attributed to anlower increaseinterest rates and a change in higherloan ratemix. CCBX loans. As ofFor the year ended December 31, 2023,2025, average CCBX loans increased $468.0$302.4 million, or 63.0%,21.2%, with an average CCBX yield of 16.30%,15.87%, compared to 13.85%17.39% atfor the year ended December 31, 2022. CCBX yield does not include the impact of BaaS loan expense. BaaS loan expense represents the amount paid or payable to partners for credit enhancements, fraud enhancements and servicing CCBX loans. The tables later in this section illustrate the impact of BaaS loan expense on CCBX loan yield.2024. There was ana increasedecrease in average community bank loans of $211.1$8.5 million, or 13.9%, which is net of an average $28.6 million decrease in PPP loans as a result of loan forgiveness and repayments,0.4%, compared to the year ended December 31, 2022.2024. Average yield on community bank loans for the year ended December 31, 20232025 was 6.20%6.52%. compared to 5.32%6.54% for the year ended December 31, 2022.2024.

The following tables (1) show the average yield on loans and cost of deposits by segment and (2)also illustrateillustrates howthe BaaSimpact loan interest income is affected byof BaaS loan expense resultingon in net BaaS loan income and the associatedCCBX yield foron the periods indicatedloans:

(1) CCBX yield on loans does not include the impact of BaaS loan expense. BaaS loan expense represents the amount paid or payable to partners for credit enhancements, fraud enhancements and servicing CCBX loans. To determine net BaaS loan income earned from CCBX loan relationships, the Company takes BaaS loan interest income and deducts BaaS loan expense to arrive at net BaaS loan income which can be compared to interest income on the Company’s community bank loans. A reconciliation of this non-GAAP measure is set forth in the section titled “GAAP Reconciliation and Management Explanation of Non-GAAP Financial Measures.”

The following table presents an analysis of the average balances of net interest income, net interest spread and net interest margin for the periods indicated. Loan costs,fees, net of feesloan costs included in interest income, totaled $9.3 million, $8.9 million and $6.3 million for the years ended December 31, 2025, 2024 and 2023, respectively and loan fees, net of costs included in interest income totaled $3.2 million for the year ended December 31, 2022.respectively.

For information regarding the Company’s risk factors, see “Risk Factors” in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2025, which are incorporated by reference herein. AsExcept as set forth below, as of MarchJune 31,30, 2026, the risk factors of the Company have not changed materially from those disclosed in the Form 10-K.

We are a bank holding company that operates through our wholly owned subsidiaries, Coastal Community Bank (“Bank”) and Arlington Olympic LLC. We are headquartered in Everett, Washington, which by population is the largest city in, and the county seat of, Snohomish County. Our business is conducted through three reportable segments: The community bank, CCBX and treasury & administration. The community bank segment includes all community banking activities, with a primary focus on providing a wide range of banking products and services to consumers and small to medium sized businesses in the broader Puget Sound region in the state of Washington and through the Internet and our mobile banking application. We currently operate 14 full-service banking locations, 12 of which are located in Snohomish County, where we are the largest community bank by deposit market share, and two of which are located in neighboring counties (one in King County and one in Island County). The CCBX segment provides banking as a service (“BaaS”) that allows digital financial service providers, companies and brands to offer their customers banking services. The CCBX segment has 30 partners as of MarchJune 31,30, 2026. The treasury & administration segment includes investments, debt and other reporting items that are not specific to the community bank or CCBX segments. The Bank’s deposits are insured in whole or in part by the Federal Deposit Insurance Corporation (“FDIC”). The Bank is subject to regulation by the Federal Reserve and the Washington State Department of Financial Institutions Division of Banks. The Federal Reserve also has supervisory authority over the Company.

As of MarchJune 31,30, 2026, we had total assets of $5.66$5.46 billion, total loans receivable of $3.86$4.21 billion, total deposits of $5.04$4.86 billion and total shareholders’ equity of $503.8$463.4 million.

Net interest income for the three months ended MarchJune 31,30, 2026 was $83.4$89.4 million, compared to $76.1$76.7 million for the three months ended MarchJune 31,30, 2025, an increase of $7.3$12.6 million, or 9.6%.16.4%. The increase in net interest income compared to the quarter ended MarchJune 31,30, 2025 was primarily related to an increasegrowth in loans receivable, partially offset by a decrease in loan yield and a decrease in interest from interest earning deposits with other banks anddue growthto inlower loansinterest receivable.rates. The average balance of loans was $366.9$580.6 million morehigher and average interest earning deposits with other banks was $338.1$11.8 million higherlower for the three months ended MarchJune 31,30, 20262026, compared to the three months ended MarchJune 31,30, 2025.

Total interest and fees on loans were $102.9$111.1 million for the three months ended MarchJune 31,30, 20262026, compared to $98.1$98.9 million for the three months ended MarchJune 31,30, 2025. The $4.7$12.2 million increase in interest and fees on loans for the quarter ended MarchJune 31,30, 2026, compared to the quarter ended MarchJune 31,30, 2025, was largely due to growth in loans, primarily from CCBX. Total loans receivable was $3.86$4.21 billion at MarchJune 31,30, 2026, compared to $3.52$3.54 billion at MarchJune 31,30, 2025. CCBX average loans receivable was $1.92$2.16 billion for the quarter ended MarchJune 31,30, 2026, compared to $1.63$1.69 billion for the quarter ended MarchJune 31,30, 2025, an increase of $292.5$476.1 million, or 17.9%.28.2%. Average CCBX yield of 15.01%14.56% was earned on CCBX loans for the quarter ended MarchJune 31,30, 2026, compared to 16.88%16.22% for the quarter ended MarchJune 31,30, 2025. The lower loan yield is the result of lower rates compared to the prior year period as well as a change in the loan mix. The Federal Open Market Committee ("FOMC") of the Federal Reserve last lowered the targeted federal funds rate by 0.25% on December 11, 2025;2025, a reduction of 0.75% compared to MarchJune 31,30, 2025. Additionally, lower rate capital call lines were $42.9$5.2 million higher compared to MarchJune 31,30, 2025. These loans earn a lower rate of interest, but have less credit risk due to the way the loans are structured compared to other commercial loans. CCBX yield does not include the impact of BaaS loan expense. BaaS loan expense represents the amount paid or payable to partners for credit enhancements, fraud enhancements and servicing CCBX loans. The tables later in this section illustrate the impact of BaaS loan expense on CCBX loan yield. Community bank average loans receivable was $1.98 billion at June 30, 2026, compared to $1.88 billion at June 30, 2025, an increase of $104.4 million, or 5.6%. An average community bank yield of 6.57% was earned on community bank loans for the quarter ended June 30, 2026, compared to 6.53% for the quarter ended June 30, 2025.

Interest income from interest earning deposits with other banks was $8.1$6.6 million for the quarter ended MarchJune 31,30, 2026, ana increasedecrease of $2.1$1.5 million, or 33.9%,18.3%, primarily due to ana increasedecrease in balancesinterest rates compared to the quarter ended MarchJune 31,30, 2025. The average balance of interest earning deposits invested with other banks for the three months ended MarchJune 31,30, 2026 was $891.5$717.9 million, compared to $553.4$729.7 million for the three months ended MarchJune 31,30, 2025. The yield on these interest earning deposits with other banks decreased 0.75%, which is in line with the reduction in Fed funds compared to the prior year period, to 3.70%3.69% compared to 4.45%4.44% at MarchJune 31,30, 2025. Interest income on investment securities decreased $28,000$14,000 to $622,000$612,000 at MarchJune 31,30, 2026, compared to $650,000$626,000 at MarchJune 31,30, 2025. Average investment securities increaseddecreased $259,000$482,000 from $47.2$46.3 million for the three months ended MarchJune 31,30, 2025,2025 to $47.5$45.8 million for the three months ended MarchJune 31,30, 2026, as a result of investments purchased for CRA purposes, partially offset by principal paydowns. Average yield on investment securities decreased to 5.32%5.36% for the three months ended MarchJune 31,30, 2026, compared to 5.59%5.42% for the three months ended MarchJune 31,30, 2025.

Interest expense was $28.3$29.2 million for the quarter ended MarchJune 31,30, 2026, a $521,000$1.9 million decrease from the quarter ended MarchJune 31,30, 2025. Interest expense on deposits was $27.7$28.0 million for the quarter ended MarchJune 31,30, 2026, compared to $28.2$30.4 million for the quarter ended MarchJune 31,30, 2025. The $515,000$2.4 million decrease in interest expense on deposits was largely due to lower interest rates despite an increase of $631.9$411.5 million in average interest bearing deposits compared to the quarter ended MarchJune 31,30, 2025. Interest on borrowed funds was $654,000$1.1 million for the quarter ended MarchJune 31,30, 2026, compared to $660,000 for the quarter ended MarchJune 31,30, 2025.2025 primarily due to higher average borrowings resulting from changes in the Company's liquidity management and funding strategy.

Cost of funds was 2.59%2.62% for the quarter ended MarchJune 31,30, 2026, which was a decrease of 0.52%0.51% from 3.11%3.13% for the quarter ended MarchJune 31,30, 2025. Cost of deposits for the quarter ended MarchJune 31,30, 2026 was 2.56%,2.57%, which was a 0.52%0.53% decrease from 3.08%3.10% for the quarter ended MarchJune 31,30, 2025. These decreases were largely due to lower interest rates.rates combined with changes in liquidity management and funding strategy.

Net interest margin was 7.00%7.27% for the three months ended MarchJune 31,30, 2026, compared to 7.48%7.06% for the three months ended MarchJune 31,30, 2025. The decreaseincrease in net interest margin compared to the three months ended MarchJune 31,30, 2025 was largely due to a decrease in loancost yield,of funds, partially offset by a decrease in costloan of deposits.yield.

Total yield on loans receivable for the quarter ended MarchJune 31,30, 2026 was 10.76%,10.74%, compared to 11.33%11.11% for the quarter ended MarchJune 31,30, 2025. This decrease in yield on loans receivable is the result of lower rates compared to the prior year period as well as a change in the loan mix. Lower rate CCBX capital call lines were $42.9$5.2 million higher compared to MarchJune 31,30, 2025. The composition of the loan portfolio is shifting with CCBX average loans increasing to 49.6%52.2% of the total loan portfolio for the quarter ended MarchJune 31,30, 2026, compared to 46.4%47.3% for the quarter ended MarchJune 31,30, 2025, and the average community bank loans decreasing to 50.4%47.8% of the loan portfolio for the quarter ended MarchJune 31,30, 2026, compared to 53.6%52.7% for the quarter ended MarchJune 31,30, 2025. For the quarter ended MarchJune 31,30, 2026, average CCBX loans increased $292.5$476.1 million, or 17.9%,28.2%, with an average CCBX yield of 15.01%,14.56%, compared to 16.88%16.22% at the quarter ended MarchJune 31,30, 2025. This reflects a lower rate environment as well as our ongoing strategy to grow a more diversified CCBX loan portfolio with a greater proportion of lower-risk loan products and improved portfolio credit quality, which results in lower average yields. CCBX yield does not include the impact of BaaS loan expense. BaaS loan expense represents the amount paid or payable to partners for credit enhancements, fraud enhancements and servicing CCBX loans. The tables later in this section illustrate the impact of BaaS loan expense on CCBX loan yield. Average community bank loans increased $74.4$104.4 million, or 4.0%5.6% due to growth and normal balance fluctuations. Average yield on community bank loans for the three months ended MarchJune 31,30, 2026 was 6.58%6.57%, compared to 6.53% for the three months ended MarchJune 31,30, 2025.

For the three months ended MarchJune 31,30, 2026, net interest margin (net interest income divided by the average total interest earning assets) and net interest spread (average yield on total interest earning assets minus average cost of total interest bearing liabilities) were 7.00%7.27% and 6.39%,6.63%, respectively, compared to 7.48%7.06% and 6.68%,6.27%, respectively, for the three months ended MarchJune 31,30, 2025.

The following table presents an analysis of the average balances of net interest income, net interest spread and net interest margin for the periods indicated. Loan fees, net of loan costs included in interest income totaled $2.5$2.7 million and $2.1 million for the three months ended MarchJune 31,30, 2026 and 2025, respectively. For the each of the three months ended MarchJune 31,30, 2026 and 2025, the amount of interest income not recognized on nonaccrual loans was not material.

The following table presents information regarding the dollar amount of changes in interest income and interest expense for the periods indicated for each major component of interest earning assets and interest bearing liabilities and distinguishes between the changes attributable to changes in volume and changes attributable to changes in interest rates. The table illustrates the increase in loan interest incomeincome, which is attributed to a $9.9$15.5 million increase in loan volume, partially offset by a $3.4$3.3 million decrease in loan rates. For purposes of this table, changes attributable to both rate and volume that cannot be segregated have been allocated to volume.

The macro economic environment is continuously changing, primarily due to the pace of economic growth, inflation, changing interest rates, global trade tensions, tariffs, unemployment, global unrest, the war in Ukraine, conflicts in the Middle East, political uncertainty, natural disasters,disasters and trade issues that may impact the provision and therefore the allowance. Gross loans, excluding loans held for sale, totaled $3.86$4.21 billion at MarchJune 31,30, 2026. The allowance for credit losses as a percentage of loans was 4.47%5.08% at MarchJune 31,30, 2026, compared to 5.21%4.65% at MarchJune 31,30, 2025.

The provision for credit losses for the three months ended MarchJune 31,30, 2026 was $51.4$92.2 million, compared to $55.8$32.2 million for the three months ended MarchJune 31,30, 2025. This includes a provision for credit losses on loans for the three months ended MarchJune 31,30, 2026 of $52.5$91.9 million, compared to $54.4$30.9 million for the three months ended MarchJune 31,30, 2025. The decreaseincrease in the Company’s provision for credit losses oncompared loans duringto the prior year quarter endedwas Marchprimarily 31,driven 2026by isloan largely related to improvement in the performance of the CCBX portfolio andgrowth, changes in the composition of CCBXthe loan originations.portfolio Theand currentthe mixestablishment of originations includes a greater$22.8 proportionmillion specific provision related to one partner relationship for credit losses not expected to be fully collected under the partner's indemnification arrangement following an individual assessment of loans with attributes that have historically demonstrated lower loss experience, which contributed to lower expected losses and a lower provision during the period.collectability. During the quarter ended MarchJune 31,30, 2026, a $52.6$94.3 million provision for credit losses on loans was recorded for CCBX partner loans. The factors used in management’s analysis for community bank credit losses indicated that a provision recapture for credit losses on loans of $1.4$2.2 million was needed for the quarter ended MarchJune 31,30, 2026, largely due to improved economic outlook, partially offset by a changedecrease in weighted average life of the CRE portfolio and an improvement in the loanoverall mix of the community bank portfolio. Additionally, a provision recapture for unfunded commitments of $1.3 million was recorded for the quarter ended March 31, 2026, primarily as a result of a change in the loan mix of available balance, compared to a $613,000 provision for the three months ended March 31, 2025. An $11,000 provision for accrued interest receivable on CCBX loans was recorded for the quarter ended March 31, 2026, compared to $784,000 for the three months ended March 31, 2025 and a $252,000 provision for other receivables was recorded for the quarter ended March 31, 2026 and there was no such provision for the quarter ended March 31, 2025.

The following table shows the provision expense (recapture) for loans by segment for the periods indicated:

Net charge-offs for the quarter ended MarchJune 31,30, 2026 totaled $49.6$50.6 million, or 5.18%4.90% of total average loans, compared to $48.2$49.3 million, or 5.57%5.54% of total average loans, for the quarter ended MarchJune 31,30, 2025. Net charge-offs as a percent of loans were down in 2026 compared to 2025, primarily due to our on-going efforts to improve the credit quality of CCBX loans. However, in general, loans originated through CCBX partners have a higher level of expected losses than our community bank loans as reflected in the factors for allowance for credit losses. In accordance with GAAP, CCBX losses are recorded as charge-offs, but CCBX partner agreements provide for a credit enhancement that indemnifies the Bank from incurred losses, and as a result CCBX partners reimburse the Bank for net-charge-offs on CCBX loans and negative deposit accounts, except in accordance with the program agreement forunder one partner whereprogram, the Company isretains responsibleownership for credit losses onof approximately 5% of a $324.0$350.8 million loan portfolio and retains the credit losses provision for that portfolio. At MarchJune 31,30, 2026, our portion of this portfolio represented $22.0$23.4 million in loans. For the three months ended MarchJune 31,30, 2026, $49.6$50.6 million of net charge-offs were recognized for CCBX loans and $1,000 net recoveries$54,000 were recognized on community bank loans. For the three months ended MarchJune 31,30, 2025, $48.2$49.3 million of net charge-offs were recognized on CCBX loans and $3,000 net recoveries$9,000 were recognized for community bank loans.

For the three months ended MarchJune 31,30, 2026, noninterest income totaled $66.1$88.7 million, an increase of $2.6$46.0 million, or 4.1%,107.8%, compared to $63.5$42.7 million for the three months ended MarchJune 31,30, 2025. The decreaseincrease is primarily attributed to lowerhigher BaaS indemnification income which is related to lowerthe provision for credit losses on CCBX loansloans. basedA on$4.4 improved credit quality, partially offset by anmillion increase in BaaS program income also contributed to the increase in noninterest income.